Financial success is often assessed in terms of accounting-based performance metrics, such as cash realization and time of service collection. These metrics are often imprecise, giving companies an inaccurate look at the financial strength of a team, department, organization, etc.
Cash realization is typically measured as a percentage of revenue. Many accounting departments compute cash realization by dividing the sum of cash receipts over the current month by the average monthly revenues of the preceding one or two months. This measurement is inherently imprecise. The numerator, i.e., the sum of cash receipts over the current month, includes cash associated with sales from the current month and all historic months. The denominator, i.e., the average monthly revenues over the preceding one or two months, only includes sales from the preceding one or two months. Thus, since the opportunity pool of the numerator and the opportunity pool of the denominator are mismatched, ergo the metric is imprecise. It should be noted that this metric is typically volatile and sometimes leads to cash realization in excess of 100%, a value that is logically not feasible.
Time of service collections is typically measured as a percentage of potential time of service collections. Many accounting departments compute time of service collections by dividing the actual time of service amounts received by the potential time of service collections. While the numerator (actual time of service collection amounts) can be determined accurately, the denominator (potential time of service collections) is often estimated based on total revenues. In businesses involving payments received from insurance carriers, the denominator is often further estimated by estimating a percentage of total revenue being direct customer liabilities. This leads to metric imprecision and volatility. Further, another significant source of error includes varying contract interpretations with the major payer, e.g., the insurance company. For example, in health care where claims are billed at gross revenue but reimbursed at net revenue, net revenue is subject to interpretation between the insurance company and the provider. Only after insurance liability has been settled can a true net revenue value be determined.
As a result of imprecision and volatility, management is often misinformed and cannot take corrective action to solve problems, leading to company performance deterioration. Further, financial success is often assessed by comparing teams, departments, organizations, etc. However, when accounting procedures differ, the same desired metric will likely not provide fair comparison.
Systems and methods that facilitate more precise accounting mechanisms and metrics are needed.